Tanzania: Shilling woes lower Q2 industrial output

Shilling depreciation and unstable power supply are to blame for slowing down of manufacturing sector growth in this year’s second quarter.

The sector contribution to GDP decelerated to 6.9 per cent in the Q2 of this year compared to 10.1 per cent of similar period last year. The shilling depreciated by over 20 per cent in the first half of the year, following high demand amid low supply US dollar.

The erratic power supply which were noticed from June this year lowered industrial output thus its contribution to the economy.

The Confederation of Tanzania Industries (CTI), Director for Policy and Research, Mr Hussein Kamote said yesterday that shilling remained a key factor for the sector slow growth.

To reverse shilling depreciation trend, BoT then, introduced tight monetary stance involving cutting commercial banks’ net open position to 5.5 per cent from 7.5 per cent of liabilities, increase banks statutory reserve requirement from the current 8.0 per cent to 10 per cent of total deposits.

CTI Director said manufacturers also are facing another challenge as some goods are entering the economy without paying import duties thus make them cheap compared to local products. “Unstable electrical supply also had its toll, but not so heavy compared to shilling,” Mr Kamote said.

“The sector contribution in this quarter (Q3) to GDP will be poor since power supply was rampant,” he said.

The sector, according to Mr Kamote is sensitive to erratic power supply since manufacturers incur a number of extra costs to maintain smooth output.

The 6.9 per cent growth was attributed to general increase in the production of industrial goods, noticeably from non-food industries such as textiles and apparel. Others are chemical products, furniture, rubber and plastic products.

National Bureau of Statistics (NBS) reports for Q2 GDP contribution by sector shows that electricity and water increased by a growth rate of 5.3 per cent in the second quarter compared to 2.0 per cent in the corresponding quarter last year.

“The reasons for electricity growth were attributed to an increase in electricity generated from hydro, thermal and gas plants,” NBS said.

The report shows that electricity generated in second quarter was 1,588.1 million Kwh compared to 1,489.0 million Kwh generated in the corresponding quarter in 2014.

“Though, electricity supply has somewhat improved in recently days it is too late to correct the lost production time in this quarter (Q3),” Kamote said.